11.07.2012

US Federal deficit spending continues unabated, real gross domestic product continues to decline, the population of employed workers has declined to 2005 levels in less than 4 years despite an 8% increase in the overall US population and its potential workforce. The current unemployment rate (11/2012) has been exceeded only twice since 1948.

US Annual Federal Budget Deficit. This graphs represents annual deficit spending. At the same time, the total US Government debt (outstanding obligations of the United States) has increased 64% in 4 years, with no end in sight. Any wonder the Fed is forcing interests rates low?

%GDP Growth 1969-2011 - US Bureau of Economic Analysis. GDP growth continues to trend down with both the ‘highs’ and the ‘lows’ getting lower.

US Employment vs Population. Over the period 2002-2011, the population grew just shy of 1% per year or 8% in aggregate. The absolute number non-farm employment as of October 2012 has declined since the Q3 2008 to the level of May 2005.

US Unemployment Rate (Bureau of Labor Statistics). October 2012’s rate is 7.9%, an uptick from last month and about the same as when Obama took office.

10.30.2012

Prop 1 represents a 63% increase in the taxes for health services Travis County is permitted by law to collect from you, if you’re a homeowner.

The real cost to Travis county tax payers is on average $278/Homeowner/Year, not the $9/months ($108/yr) political ads promote. Its not about funding healthcare - its about a 63% increase in the amount the County can collect because like the Federal government, they can’t seem to live within a budget.

Prop 1 grants the County the right to collect property taxes of 12.9 cents per $100 dollars of real estate evaluation. This represents a 63% increase above current statutory limits.

Carole Keeton Strayhorn is on the air three times an hour to assure voters that ‘It’s a conservative investment’ and that it will reap ‘hundreds of millions of dollars’ back to the county. She tells us it will only cost the average homeowner $9/month, or $108/year.

Really?

If this were true, that would mean the median price of a home in Travis County is only $83,700. The fact is that Strayhorn in only counting the amount (63%) over what the County can collect today without the voter approval. The true cost of Prop 1 is on average $278/year per home. To be fair - the County is going to collect the first $170 from each of us next year anyway. Prop 1 is about whether we’re going to give them another $108 on top of that. (This is based an average home price of 216,000 and the tax rate of 12.9 cents/$100 evaluation).

Prop 1’s advertising with sad stories about people having to drive to Houston for medical care because we don’t have the services here are both disingenuous and misleading. Why is it that political ads need to lie about actual costs to the taxpayer? If Prop 1 is such a tremendous benefit to Travis County residents - why obscure the real cost? What else haven’t Prop 1 proponents told us?

Prop 1 is simply about raising taxes because Travis County, not unlike the federal government, can’t seem to operate within a budget. Unlike the Federal government - Texas state law requires the County obtain your permission before it can legally overspend.

4.23.2012

In a free market economy, like minded individuals come together and 'incorporate,' i.e., collectively work together to deliver value to a marketplace. This kind of corporation is subject to the response of its market and the competitive forces of other corporations that choose to operate in its space. Modulo investment to start the corporation, both in money and sweat equity, and that used to sustain the operation until it achieves profitability, a corporation succeeds or fails by its ability to deliver value and retain a profit. This is the essence of capitalistic enterprise - the free association and free marketing of products, services, and ideas.

If a competitor does likewise, but more efficiently, i.e., at lower cost - it has the potential to capture a greater share of the target market, and displace any less efficient competitor. In a robust marketplace inhabited by more than a couple of competitors, a displacement by a strong competitor may not only further reduce the profitability of any of the others, but drive one or more out of business. Any of these market actors could (and should) find themselves out of business if they fail to address inefficiency, or worse, blunder with their financial decisions, like take on unsustainable debt, miss schedules, or deliver shoddy quality products. If they fail, any resources that remain will then be awarded to their creditors, investors, or both.

In a free market economy, one witnesses this behavior frequently. When a company goes bust, its residual assets are acquired by banks, sold to liquidators, even acquired by competitors so creditors can be paid. Employees go to work elsewhere, hopefully for a less hapless or unlucky management than their previous position. The marketplace of customers gain by lower cost products, superior service, or other benefits they, the market (not the government) value.

When the Government intervenes in this natural selection, always for a myriad of ‘good’ reasons - the dynamics of a free market, and the drive to ever increasing efficiency is halted. Corporate officials, rather than finding themselves out of work for their incompetence, are frequently rewarded by their boards ‘for saving the company.’ But what has been saved? A brief enumeration would have to include the same decision makers who drove the company into the ground, the same inefficient processes that yielded product and market failure, and the same lack of market market receptivity.

What has been gained by Government intervention in economic affairs? A new constituency beholden to its Government benefactors, i.e. the politicians that supported its ‘bailout’ plan. When the reconstituted company fails again - it is more likely to be bailed out a second (or third, or …) time*.

As opposed to the free market, Government action is dictated by political sentiment, not fiscal reality. The Government, in for a penny, will go in for the pound so as to keep the now protected enterprise solvent*. The Government (and the politicians that represent it) will go back-to-the well in order to justify the initial ‘investment.’ They will go on about ‘protecting livelihoods, business, and jobs, when all the Government has really accomplished is the support of inefficiency and higher prices, and blocked workers from obtaining more rewarding employment in vibrant and growing enterprises. In short, Government intervention has rewarded failure and created a new protected class, gaining for itself a new constituency that perceives Government intervention as necessary for its financial health.

Such a system of Government protectionism is self-perpetuating. It creates a frail economic edifice that demand ever increasing ‘protection.’ It fashions itself as the ‘savior’ of the economy. As protected industries ‘blow up,’ the government steps in to ‘bring stability to the markets.’

Once the Government becomes a corporate ‘protector,’ its corporate ‘client’ is removed from the dynamics of a healthy economy. The corporation no longer ‘lives’ to deliver value to its market, but rather to maintain its ‘favored son’ status to the State. Both State and Vassal become parties to a type of cronyism and concentration of power that the Tea Party and Occupy movements can only rail against. Without concerted effort or a major (catastrophic?) correction - this system of cronyism is self-perpetuating and biased towards ever greater State control of the economy. Government sponsored corporate cronyism is not capitalism of any kind. It is the pre-cursor of an increasingly socialized economy.

The only antidote to this trend of increasing government protected economy, is the excision of government from corporate operations and vice versa. The asymmetry of this problem stems from corporations (and their officers) seeking shelter from their intended market while maintaining the privilege of their office. The benefit for the State is increased control, i.e. power, over the engines of the economy. I’m reminded to the years between WW1 and II. It seems we’ve seen this behavior before, and the results then weren’t pretty.

Corporations that are focused on delivering value to their customers, who aren’t protected by their Government from competitive pressure, and who are directly accountable and impacted (financially) by their actions - should be allowed to succeed or fail on their own merits alone.The point is simple. If you believe corporations are too big, have too much power - then you might consider supporting candidates this election season who don’t believe any economic entity is ‘too large to fail,’ who support reducing Government’s role in the economy and in protecting selected corporations to the detriment of all others.

*Chrysler corporation is just one example that illustrates the point. Chrysler’s first Government bailout was a $1.5 Billion load package delivered as the Chrysler Corporation Loan Guarantee Act of 1979*. The next Government bailout was delivered to Chrysler by the Bush administration in December of 2008 to the tune of $4 Billion dollars, followed early in Obama’s first year by an additional $8.5B, with an addition $1.5B delivered to Chrysler’s credit arm. In total - Chrysler was provided $15B in loan guarantees (taxpayers on the hook). To be fair, the 1979 Bailout, backed by the US Treasury was repaid in full by 1983 - four years later.

1.29.2012

Clearly the ‘wealthy’ are not ‘paying their fair share,’ as the President and the Occupy Movement (aided by CNN, NPR, and even Fox News) attests. The president also implied that Warren Buffet (Forbes 3rd richest individual) pays less than his secretary. They must do more.

Really? So who does pay taxes in the US, and how much? What if I were to tell you that of the 1% of highest income earners in the US paid 36.72% of all taxes in 2009 (the last year for which statistics have been published). In other words more than 1/3 of all taxes collected from individuals came from just 1% of ALL income earners. The source? Your Internal Revenue Service.

For the impatient or busy among you, the bottom line is this: The pressing political issue in this election year isnot about inequality, or fairness, - its about whether we believe that granting increasing economic power to the Federal Government, at the cost of the actual engines of economic growth, non-governmental enterprise, will create the kind of society we each want. If we don’t arrest federal spending, the result must be higher taxes on individuals and businesses across all incomes, and increased interest payments on Federal debt. All of which is is then unavailable to create productive jobs - jobs that expand the economy.

___

Ok for those of you still hanging in there: Who really pays taxes?

Using the IRS data above, the Tax Foundation breaks down the average tax rate that applied to all individual tax payers as follows:

Top Percentile (% of top taxpayers by income level)

Share of Total Adjusted Gross Income

Share of Total Individual Taxes Paid

Taxes as Percentage of Earnings (Effective Average Tax Rate)

Income Above

1%

16.90%

36.70%

24%

$343,927

5%

31.70%

58.70%

20%

154,643

10%

43.20%

70.50%

18%

112,124

25%

65.80%

87.30%

15%

66,193

50%

86.50%

97.70%

12.50%

$32,923

According to the IRS, the top 1% on average pay the highest effective tax rate of 24% on their earnings, Mitt Romney and Warren Buffet notwithstanding. They also pay over 36% of ALL taxes. The next highest group, above $154,000/yr (top 5%), excluding the top 1%, pay an additional 22% of all taxes collected.

The top 5% of income earners in total pay almost 60% of all of the total individual taxes collected.

Think about this. 5% of all income earners pay 58.7% of all individual federal taxes collected. This means that of all tax payers (the 50% of us who actually pay federal tax) - the top 5% pay at least 1.5 times as much as a percentage of their income as do the rest of us (or any of us) already. And let's not overlook the fact that almost 50% of income earners now pay no federal income tax whatsoever.

The chart above tells us that the top 1% ($343K+) earn almost 17% of the total income, but pay 37% of all taxes. The top 5% ($154K) earn almost 32% of the total, but pay close to 60% of all taxes. The top 25% ($66K/yr and up) earn about 66% of all individual income, and pay about 88% of all taxes collected. This means that 75% of all taxpayers, earning less than that $66K/yr, pay less than 12% of all taxes. And the tax system is not progressive enough?

The populist and underlying assumption about taxing higher income earners is simple: their income is the fruit of ill-gotten gain, and therefore those ‘earning’ it don’t deserve it. It should be therefore surrendered to the government, or at least as much as the state can get away with taking. If this unspoken assumption isn’t class warfare - I don’t know what is.

If you consider the exponential increase in federal spending and the deficits it represents - if you think confiscatory taxation will stop with the top 1%, or %5%, or 10% - think again. Out of control Federal spending, as illustrated by the St. Louis Federal Reserve chart below tells us only one thing: we either arrest and cut federal spending, or divert more and more from the wealth and job producing economy, to one that exists only on the backs of the productive. In the end, it will ultimately affect all taxpayers.

We can discuss and argue about the roles of republican and democrat regimes in the current situation. But it is clear that Federal spending was on a steady and accelerating course before Obama took office. Since then, both parties have joined hands to enact both the largest federal bail-outs and the most wide sweeping entitlement (Obamacare) in US history. Each have created huge liabilities from which there are only one of two courses: radically spending cuts and then allowing we the people to rebuild and clean up the mess; or rely on an increasingly powerful federal government to mold and shape our economic and personal lives.

This is an election year. The situation is not hopeless. We either support candidates who are committed to arresting uncontrolled spending, or we give up and accept an inevitable Grecian winter. The choice is ours. The time is now. Study your candidates, local, statewide, and national. Make a decision, vote. It won't be perfect, it probably won't be popular. But at least you will have stood up to be counted as one who has said, 'Enough!'

Thoughts in Kind

About Ron

Ron Williams is a systems architect focusing on security at IBM Corporation. The comments posted here are his own alone. They are not intended to reflect the views of the IBM Corporation, its Agents, or its Subsidiaries.